Mozambique Taxes Overview

Mozambique personal Income Tax

In Mozambique, employment income is taxed under the PAYE system at rates up to 32%. The maximum rate applies to monthly income approximating USD 27,000. A 25% rate applies above approximately USD 7,000 per month.

Basis – A resident individual is subject to tax on worldwide income, with unilateral relief available for any foreign tax paid. A nonresident is taxable only on Mozambique source income.

Residence – An individual is resident for tax purposes if he/she resides in the country for more than 180 days in a tax year, or has a permanent residence in Mozambique on 31 December.

Tax Filing status – Returns are filed on a household rather than a separate basis.

Taxable income – The income of an individual is taxed under separate schedules for employment, trade and business, capital gains, real estate and other income. Employment income is widely defined and includes benefits or advantages received from the employer.

Capital gains – The gross gain or loss is halved for rights in real estate or business assets. For shares, the percentage factor depends on how long the shares have been held, from 75% (held up to 1 year) to 30% (held over 5 years).

Stamp duty – Stamp duty at 0.4% applies to share transfers and 0.2% to transfers of buildings. Land transfers (which are always leaseholds) are exempt from stamp duty.

Real property tax – An annual municipal tax is assessed at up to 0.4% (for a residence) and 0.7% (for offices) of the value of property in Maputo and Matola.

Inheritance/estate tax – Estate duty/donations tax is payable by the beneficiary/recipient. The tax rate ranges from 2% to 10% and depends on the amount and the relationship between the donor and the recipient.

Branch tax rate is 32%, although a penalty rate of 35% may be charged on unsubstantiated payments. Agricultural companies are taxed at 10% until 2010. Special tax regimes apply to certain investment projects where incentives are granted.

Residence – A company is resident if its head office or place of effective management or control is in Mozambique, or if the business is registered in Mozambique.

Basis – A resident company is taxed on its worldwide income. A nonresident company is subject to tax only on its Mozambique source income.

Taxable income – All income and gains are included in taxable income. Expenses considered indispensable in the generation of income or gains subject to tax are deductible.

Taxation of dividends – Dividends are subject to a 20% withholding tax unless they qualify for the participation exemption (see below). Foreign-source dividends are taxable at the full company rate.

Capital gains – Capital gains or losses are included in ordinary income and taxed at the company rate. An inflation allowance is available (which has to be determined on a case-by-case basis, since the inflation coefficients have not been set by the tax authorities).

Losses – Tax losses may be carried forward for 5 years. The carryback of losses is not permitted.

Surtax – No

Alternative minimum tax – An AMT applies to very small entities (turnover less than USD 85,000).

Foreign tax credit – Mozambique applies the ordinary foreign tax credit as a unilateral method for the avoidance of double taxation of income obtained abroad for resident companies and permanent establishments of nonresident companies. Unused credits may be carried forward for up to 5 years.

Participation exemption – No withholding tax is levied on dividends paid to a Mozambique company that has held 25% or more of the shares in an associated company in Mozambique for at least 2 years.

Holding company regime – No

Tax Incentives – Tax incentives, including tax credits and the reduction or exemption of corporate tax, are available under the Fiscal Benefits Code. Companies that invest in Rapid Development Zones and Industrial Free Zones, in agriculture, mining, oil, tourism and industrial and services projects also may benefit from incentives that vary by location, the number of employees and whether the products are exported.

Withholding tax:

Dividends – Dividends paid to residents and nonresidents are subject to a 20% withholding tax (10% for shares listed on the Maputo stock exchange) unless the rate is reduced under a tax treaty.

Interest – Interest paid to residents and nonresidents is subject to a 20% withholding unless the rate is reduced under a tax treaty. A zero tax rate applies to interest paid to a registered Mozambique financial institution

Royalties – Royalties paid to residents and nonresidents are subject to a 20% withholding tax unless the rate is reduced under a tax treaty.

Other – Payments made to nonresidents for telecommunications services, international transport services and the assembly and installation of telecommunications equipment are subject to a 10% withholding tax.

Branch remittance tax – No

Other taxes on corporations:

Capital duty – No
Payroll tax – No

Real property tax – An annual municipal tax is assessed at up to 0.4% (for a residence) and 0.7% (for offices) of the value of property in Maputo and Matola.

Social security contributions – The employer pays 4% of staff emoluments, with no upper limit.

Stamp duty – Stamp duty at 0.4% applies to share transfers and 0.2% to transfers of buildings. Land transfers (which are always leaseholds) are exempt from stamp duty.

Transfer tax – A transfer tax of 2%, normally paid by the transferee, is charged on the transfer of title to a building. The rate is 10% when the buyer is resident in a jurisdiction with a more beneficial tax regime.

Other – An economic activity tax is charged on businesses in municipal areas, but the costs vary according to location, type and size of the business, and are not significant.

Anti-avoidance rules:

Transfer pricing – The arm’s length principle applies to deals between related parties. For payments to companies in low tax jurisdictions, the authorities will need to be satisfied that the payment was genuine and reasonable.

Thin capitalisation – The deduction of intercompany interest may be limited where the indebtedness to a nonresident related party is more than twice the equity.

Mozambique Tax year – Mozambique tax year is the calendar year, although a company may adopt any accounting date, if so authorised.

Consolidated returns – Consolidated tax returns are not required; each company in a group must file a separate tax return.

Tax Filing requirements – Companies must make 3 provisional corporate tax payments in May, July and September. The total amount should be 80% of the amount of the tax assessed for the previous year. Annual tax returns and the balance of tax due must be submitted by 31 May, with supporting documents filed a month later.

Penalties – There are penalties for late filing, nonpayment of tax and failure to disclose records. Penalties range from approximately USD 100 to USD 33,000. Interest is charged on late payments. Prison terms for tax fraud may be up to 8 years, or up to 2 years for negligence.

Rulings – General rulings on the interpretation of the tax law, or advance rulings on the taxation of specific transactions may be obtained from the tax authorities. Such rulings are binding on the authorities with respect to the disclosed facts of the transaction.

Mozambique vat (Value Added Tax) Rate

The standard rate of VAT in Mozambique is 17%. Banking and certain health, education and philanthropic services are exempt and exports of goods and services are zero-rated.

Taxable transactions – VAT is chargeable on the supply of goods and services in Mozambique, and on imports.

VAT Registration – Form 1 is used to obtain a Unique Tax Number and Form 6 as a declaration of initiation of activities.

Filing and VAT payment – The monthly VAT must be filed by the last day of the following month.